Coming out of the December FOMC meeting, Federal Reserve officials have opted to hold interest rates where they are for the remainder of 2023 and signaled up to three rate cuts over the next year.

Dartmouth College Economics Professor Andrew Levin reacts to the Fed's rate decision, the direction of inflation, and what this economic environment may mean for US workers.

"When we think of a marathon, the last mile is like you're 95% of the way there. The supercore [inflation] peaked at around 6% on a 12-month basis, right now it's around 4% but it's actually been heading up over the last three months," Levin, a former Federal Reserve Board Special Adviser, tells Yahoo Finance. "That's one of the things that makes me uneasy. it's not heading in the right direction."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

This post was written by Luke Carberry Mogan.

Video Transcript

JULIE HYMAN: Let's talk more about all of this.

For more on the Fed's decision, let's bring in Andrew Levin, Dartmouth College economics professor and former Federal Reserve Board special advisor.

And I am delighted to welcome Andrew in the studio.

Usually, we're talking to you in your office at Dartmouth, so it's really nice to see you in person.

ANDREW LEVIN: It's really great to be here.

JULIE HYMAN: Yeah, so let's talk.

First of all, no change.

We knew there was going to be no change.

What stands out to you from what we've heard though thus far?

ANDREW LEVIN: Well, I think the dot plot will be reassuring to the markets for sure, but let me just point out a couple of things that are important in this statement.

The committee has been emphasizing the strong commitment to 2% inflation target.

And in their current outlook, they're expecting it to get very close to 2% over the next year or year and a half, in which case, it makes sense to move policy all the way down probably below 2 and 1/2%, 3% somewhere in there.

That's the really benign scenario.

But they also say in the statement, they're attentive to inflation risks.

And I think the critical thing here for markets is to understand that there are still risks that inflation is not going to come down so quickly.

Let me just give you an anecdote here.

So I took Uber from up down to your studio a few minutes ago.

The Uber driver, who's here in New York City, told me that their salaries starting from January are going to go up from $17 an hour to $26 an hour.

Now, that's not so different than what we heard from the Auto Workers Union a few weeks ago from pretty tough negotiations.

But the extent to which a lot of workers fell behind the cost of living over the last couple of years and now the job market's held up pretty well and those workers want to catch up with the cost of living.

Uber is not a charity, so how are they going to cover that big pay increase?

JULIE HYMAN: That's a big increase.

ANDREW LEVIN: A huge increase.

I mean, it's great for the Uber drivers.

It's great for those of us who use, you know, rideshare services because there will be more of them available.

JULIE HYMAN: But is it good for us in terms of the prices we're going to pay?

ANDREW LEVIN: Exactly.

And the point is Uber is not a charity and so they're going to pass that through.

And so when we look at what economists call core services-- and actually Chair Powell invented the term super core, which refers to services, say health care services, well those are going up at 5% and 6% now.

Restaurant services, 5% or 6%.

Transportation services like Uber and other kinds of transportation, health insurance premiums, car insurance premiums are all going up.

And so the real question here I think for the Fed is-- and we'll hear, I'm sure, from Chair Powell about this, is if they're going to be attentive to the risks, they can't just, kind of, start moving down and be relaxed.

They're going to have to really be careful here.

JOSH LIPTON: So are you implying, Andrew, that you think that last mile backed that 2% target is going to be tougher than maybe a lot of people expect?

ANDREW LEVIN: Yeah, and in fact, I wouldn't use the word last mile.

I think when we think of a marathon, the last mile is like you're 95% of the way there.

JOSH LIPTON: Yeah.

The super core peaked at around 6% on a 12-month basis.

Right now it's around 4%, but it's actually been heading up over the last three months.

That's one of the things that makes me uneasy here.

It's not heading in the right direction, OK?

But still 4% is halfway home more or less, but it's not the last mile.

And so I think that part of the Fed's attentiveness to these inflation risks is going to be looking really closely at these core services over coming months and over the next year or two.

Hopefully, workers can catch up with the cost of living without spurring another round of inflation.